Low commodity prices are taking a toll on midwestern farmers.
According to a new survey of agricultural banks by the Federal Reserve Bank of Kansas City, many farmers were late making loan payments in the fourth quarter of 1998. A repayment index-which measures how quickly farm borrowers pay back bank debt-dropped by 44%, compared with the same period in 1997, according to the quarterly poll of 314 banks.
Meanwhile, 2% of the banks responding said customers were having "severe" repayment problems, the survey showed.
Russell L. Lamb, senior economist at the Kansas City Fed, said cattle and hog farmers are probably the furthest behind in their loan payments, because most have not turned a profit in four years.
"Some producers are really taking it on the chin," he said.
The bankers also reported an increase in the number of loans being restructured. The poll's index of loan renewals or extensions was up 34% in the fourth quarter, compared with the same period in 1997.
Commodity prices have been falling for more than a year, because of overproduction and weak overseas demand. For example, the average price for a bushel of soybeans was $4.55 in March, down 5.2% from February and 29% from March 1998, according to the U.S. Department of Agriculture. The USDA projects that prices will remain depressed for at least another two years.
Farmers' concern over low prices has discouraged them from taking out additional loans. Demand for new loans fell 20% in the fourth quarter, the survey revealed.
Terry Barta, senior vice president at Smith County State Bank and Trust in Smith Center, Kan., said loan demand at his bank weakened late last year as customers stopped borrowing money for equipment, machinery, and land purchases.
"Most of that reflects the concerns our customers have about soft commodity prices," he said.
Others are voluntarily putting their machinery up for sale to raise cash, he said.
The latest survey contained some good news, however. The value of farmland in the Kansas City Fed district-which covers Colorado, Kansas, western Missouri, Nebraska, northern New Mexico, Oklahoma, and Wyoming- dropped slightly between the third and fourth quarters of 1998. But overall per-acre prices for nonirrigated, irrigated, and ranch lands increased between 1.73% and 4.57% from the fourth quarter of 1997.
That means farmers are not rushing to sell their land, an indication that they are optimistic about farming's future, Mr. Lamb said.